Thomas Piketty

and the distribution of

capital
Political Economy: Approaches, Concepts and Issues
10 December 2015
Christel Koop

Overview
I.
II.

III.

Background
Capital in the Twenty-First Century
Starting point
Key argument
Implications for the role of the state
Critique and influence

I.
Background

Background

1971 Born in Clichy (greater Paris)

- Left-leaning family
- But [p]olitics were not discussed at home (Piketty
quoted in Chassany 2015)
1993 French Economics Association: best PhD thesis
1993-1995: Assistant professor at MIT
1995 Researcher at the French National Centre for
Scientific Research (CNRS)
2000 Professor at the School for Advanced Studies in the
Social Sciences (EHESS)
2002 Prize for best young French economist
2006 Co-established the Paris School of Economics
2006-2007 Advisor to Sgolne Royal (Socialist Party)
2013 - Capital in the Twenty-First Century

Key concerns

Economic history
Concerned with the past, but also seeks to
extrapolate into the future (the 21st century)
Going beyond existing data e.g., World
Wealth and Income Database
Economic inequality
The growth of income at the top 1% in
developed economies since the 1970s/1980s
Thesis: capitalism, by its very nature, worsens
inequality

Piketty says his interest in inequality crystallised

after the collapse of the Berlin Wall and the first
Gulf war. He recalls visiting Moscow in 1991 and
being struck by the lines in front of shops. He
came back vaccinated against communism I
believe in capitalism, private property, the
market but also with a question central to his
work: How come those people had been so afraid
of inequality and capitalism in the 19th and 20th
century that they created such a monstrosity?
How can we tackle inequality without repeating
this disaster?
(Chassany 2015)

II. Capital in the

Twenty-First
Century (2013)*

* Page numbers refer to 2014 English edition

Contribution

Empirical: analysis based on new historical and

comparative data covering three centuries and over
20 countries (WWI Database)
Without precisely defined sources, methods, and
concepts, it is possible to see everything and its
opposite (pp. 2-3)
Theoretical: new causal argument
Normative: what, if anything, should be done about
inequality?
there will always be a fundamentally subjective
and psychological dimension to inequality, which
inevitably gives rise to political conflict that no
purportedly scientific analysis can alleviate (p. 2)

Critique of mainstream
economics
No questioning of neoclassical assumptions
But critique of the focus of economists

the discipline of economics has yet to get over its childish

passion for mathematics and for purely theoretical and
often highly ideological speculation, at the expense of
historical research and collaboration with other social
sciences. Economists are all too often preoccupied with
petty mathematical problems of interest only to
themselves. This obsession with mathematics is an easy
way of acquiring the appearance of scientificity without
having to answer the far more complex questions posed
by the world we live in (p. 32)

Income inequality (income

before tax)

Wealth inequality always

higher than income inequality

Key concepts

Income (from labour) => wages, salaries,

bonuses, earnings from non-wage labour
Wealth/capital => assets owned (by private
individuals)
r => rate of return on capital
Income from capital in the form of rent,
interest, dividends, profit, capital gains,
royalties, etc.
g => growth rate
Two elements:
1. Population growth
2. Per capita output/productivity growth

Key argument
When the rate of return on capital exceeds
the rate of growth of output and income, as
it did in the nineteenth century and seems
quite likely to do again in the twenty-first,
capitalism automatically generates arbitrary
and unsustainable inequalities that radically
undermine the meritocratic values on which
democratic societies are based (p. 1)

Key argument

On the long run, there is a tendency for the rate

of return on capital to exceed the rate of growth
Growth rate typically not much above 0% for
most of mankind; after Industrial Revolution on
average about 1-2%
Rate of return on capital typically about 5% and
even higher after Industrial Revolution
In other words: r > g
And under conditions of r > g, the rich become
richer (not dependent on market imperfection)
More capital to invest; effect of scale (Ch. 12)

Key argument

In general r > g

but different in 1914-1945 period:

Growth exceptionally high (3-4 %)
Return on capital exceptionally low
because of war shocks, inflation and government
intervention

Twenty-first century: back to post-Industrial Revolution

levels
But relation r and g difficult to predict: depending on
technology, saving behaviour, reproduction behaviour,
etc.

Piketty and Marx

Piketty a Marxist?
Marx: private capital accumulation inevitably leads to
the concentration of wealth in ever fewer hands
Piketty: not necessarily
Marxs (implicit) assumption of zero productivity
growth over the long run not warranted
Deconcentration of wealth is possible
But deep structures of capital and inequality have not
changed, which is worrying
And policies to deal with inequality difficult to adopt

Implication for the role of the

state

Extreme inequalities challenge the meritocratic

values on which democratic society is based
and may result in unrest and backlash
So something needs to be done
We could wait for the next shock
but better for governments to regain control
over capitalism political institutions
Progressive income tax top rate about 80%
Global tax on capital why global?
Utopian?

What needs to be done?

TED talk Piketty:

Thomas Piketty: New thoughts on capital in th
e twenty-first century
Foreign Affairs talk:
Thomas Piketty on Economic Inequality

A call for a countermovement?

Interference needed to deal with the
inevitable tendency to inequality
But: not an advocate of protectionism and
nationalistic responses
Call for a progressive countermovement?

Should government intervene to

reduce income inequality?
PollEv.com/christelkoop

III. Influence and Critique

Reception of the book

Absolute bestseller (though more purchased than
read)
It has been a long time (how does never work
for you?) since a technical treatise on economics
has had such a market (McCloskey 2014, p. 73)
Wide acclaim; less popular with laissez faire
scholars
Economist of the left?
At least sharpened the debate between advocates
of state intervention and free markets

McCloskey (2014)
Under capitalism, in the average rich
country, the income of the workers per
person increased by a factor of about 30
Capitalism has resulted in much more
equality in the important areas such as
education, health, product quality, etc.
Government intervention particularly in
the form of redistribution will have a
negative effect on all of this

Acemoglu and Robinson (2014)

r > g as a general law, even though Piketty
acknowledges that other factors play a role
But general economic laws are unhelpful as
tool to understand past and future
General laws ignore institutions and
technological development
Analysis: gap interest rate-growth rate does
not explain historical patterns of inequality
well

Have a nice Christmas break and a

good start of 2016!
And good luck with the January exam!